Why We Trimmed Microsoft & Costco

This week we trimmed Microsoft (MSFT) and Costco (COST) in the AMM Dividend Growth Strategy.

These were rules-based trades.

We only traded in accounts that had overweight positions in Microsoft or Costco.

We’ve owned Microsoft since the start of the AMM Dividend strategy. We made our first purchase when it was trading below $20 per share. Since then it has enjoyed a tremendous run as the new CEO Satya Nadella transformed Microsoft into a software as a service (SaaS) company and its Azure division into a cloud computing juggernaut.

Before this market correction, Microsoft was already breaching our rules for maximum position size. Then during the correction Microsoft, with its strong cash flow and the surge of people working from home, helped the company outperform during the selloff. Microsoft became too overweight in accounts.

We follow our portfolio rules in good times and bad.

With the recent relief rally, we took the opportunity to trim Microsoft back down our target weight range. Microsoft, like Visa and MasterCard, is a high conviction idea and it continues to have an overweight position in the portfolio. Our target is 4% for accounts that are 100% invested in the AMM Dividend Growth Strategy.

Costco is another position that outperformed during this sell-off. If you’re going to lock yourself in your house for weeks on end and you need food and supplies where else are you going to shop? And because of this Costco became overweight in some accounts too.

The Costco trade only affected a handful accounts. To trigger a trade an account needed to be overweight and not subject to a short-term capital gain. The few Costco trades were mostly triggered in tax deferred/exempt accounts.

The capital we raise from the sale of Microsoft and Costco will be used to add to other positions in the portfolio or to new positions that we’ve been waiting to buy. The containment and recovery from the coronavirus will take time and we should have ample opportunity to deploy the capital we’ve raised from these sales.

The market selloff has also provided the opportunity to harvest capital losses to offset capital gains incurred from these two trades. We will strategically look to harvest losses in the weeks and months to come.